Market forces crushing farmers

14 Mar, 2015 01:00 AM
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I’m only 43 and I don’t know where my future is – it’s unknown

CANE grower Mario Quagliata had hoped his son would join him on the farm one day, but with Australia’s sugar marketing system at a tipping point he is deeply concerned for the industry’s future.

While the marketing arrangements are now in a complex state of flux, Mr Quagliata - one of about 300 farmers who attended public Senate hearings on sugar marketing in Townsville on March 12 and 13 - said his concerns were simple.

“I’ve got a 13-year-old boy who’s showing all the signs of wanting to stay on the land and I don’t know where his future is,” he said.

“I’m only 43 and I don’t know where my future is – it’s unknown.”

LEFT: Mario Quagliata talks with Senator Barry O'Sullivan - RIGHT: the Townsville turnout

Single desk exodus

Singapore-based Wilmar International’s decision to exit industry-owned Queensland Sugar Limited (QSL) export marketing arrangements and set up its own commercial model last April drew an outcry from growers, who have relied on a century-old system to guarantee market prices. It also sparked an exodus from the single desk, with Thai-owned MSF Sugar and Chinese-owned COFCO withdrawing soon afterwards.

Six Queensland LNP representatives – including LNP Senator Barry O’Sullivan – signed a joint letter to Wilmar imploring the company to reconsider.

“The unilateral decision is anti-competitive and lacks transparency,” the letter said. “It would see the growers stripped of their long-standing right to choose who markets their sugar.” The letter also noted that once in force, the decision would take 2 million of the 3.2m tonnes supplied away from QSL, effectively ending the marketing single desk.

“Decisions such as this … squeeze our primary producers and further reduce their viability. Producers are already struggling under the weight of poor weather, high exchange rates and massive electricity price increases.

“Losing the competitive advantage provided by QSL may well be the final nail in the coffin for many growers.”

Responding to growers’ concerns, a Rural and Regional Affairs and Transport References Committee was set up to run an inquiry on current and future arrangements for the marketing of Australian sugar.

The committee’s terms of reference include: the impact of proposed marketing changes; equitable access to essential infrastructure, and the potential local impact of foreign ownership levels in the industry.

Also under discussion is whether there is a need for government intervention under competition and consumer laws, and whether growers are adequately protected against market imbalances.

Wider ramifications

Mr Quagliata’s concerns are shared not just by other cane growers. The sugar marketing inquiry could have ramifications across a range of agricultural sectors, committee member Senator O’Sullivan said.

Farmer groups in NSW and Victoria have also called for a Senate inquiry into meat processor power and practices. Senator O’Sullivan is backing this inquiry as well, along with Senators John Williams and Bridget McKenzie, to investigate buyer collusion, concentration of foreign ownership in the processing sector and ongoing concerns about potential market imbalances in the beef supply chain.

“This (sugar) inquiry may set a national precedent as a model to ensure fairness, equity and transparency in all agricultural sectors, especially those who are price takers and have limited ability to create tension in their own market,” Senator O’Sullivan said.

The committee hoped to “shine a bright light across agriculture on processing and supply chain issues” and will be asking almost identical questions in the beef inquiry, he said.

“These inequities have been entrenched across the agricultural sector.”

Agriculture Minister Barnaby Joyce said he would be listening closely to what his Senate colleagues had to say on market power imbalances.

“Once we get a centralisation by an entity not owned by growers we have the capacity for exploitation,” Mr Joyce warned.

“Government has a role to ensure that farmers get a fairer deal.

“It is something that we have to address through the prism of the ACCC powers and acknowledge that a monopoly in a regional area is almost like a divine power.”

The Minister said he would lobby for changes to the competition and consumer act to deal with issues such as the sugar and beef market concerns.

No confidence in millers

Senator O’Sullivan said despite ongoing discussions with Wilmar, MSF, Tully and QSL, hope of a commercial resolution to growers’ concerns was fading, making legislative intervention more likely.

“We’ve deregulated markets and there have been a lot of benefits, but with sugar we have something unique,” he said.

Due to the perishable nature of cane, transport costs and the ownership and location of mills, it is not commercially viable for most growers to seek to supply a different mill.

“It starts to degrade as soon as it’s cut, you put it in a flimsy train carriage and then you’re going to just one place, there is no market tension, you’re a captive of that mill.”

Mr Quagliata, who produces 20,000 tonnes of cane annually in the Feluga district, said there was little confidence in the alternative to QSL offered by the breakaway millers.

“There’s talk of the millers maybe under pressure coming back and possibly renegotiating at the table direct with farmers,” he said.

“I think that could work, but that would be only a short-term measure, because I believe these big companies will sit quiet for another two, three years and then they’ll start this all again.”

Mr Quagliata supplies sugar to Tully, the last of the big three mills to abandon the QSL system last year. When Chinese agribusiness COFCO bought Tully in July 2011, suppliers were told the takeover would not affect existing arrangements.

However, the withdrawal of Wilmar and MSF from the QSL export marketing system meant QSL would lose more than 70 per cent of its critical export mass and market advantage, which Tully told the Senate sugar committee presented “an unacceptable risk to our business and our growers”.

“Tully Sugar determined it could no longer accept the concentration risk of being bound solely to QSL as the provider of raw sugar export marketing services,” its submission to the inquiry stated.

Mr Quagliata said growers feel betrayed by the change of heart.

“After what they initially said when they bought (Tully), we didn’t expect that to come, but it’s pretty obvious now they probably had that view from the beginning,” Mr Quagliata said.

“We don’t want to stay with the single desk necessarily, but with something that was working very well, why they would need to change it?

“The only reason … is because they can somehow see some method of creating more money for their companies – and the only real way to do that is to take it away from the grower, I believe.”

'Better for growers': Wilmar

Wilmar said its decision to exit QSL by the 2017 season followed more than two years of discussions with Queensland industry leaders about alternative sugar marketing arrangements, in keeping with the terms of the deregulation of sugar marketing in 2006.

Following rejection of Wilmar’s proposals by the Australian Cane Farmers Association and Canegrowers, the company gave three years notice of its intention to leave the QSL marketing system, as contractually obliged.

Wilmar “firmly believes it can deliver better returns for growers” than QSL, through a more innovative approach to marketing and by drawing upon its global marketing expertise and capabilities.

QSL in turn said Wilmar appeared to be seeking to leverage its market power as a major buyer and processor to tie up marketing services. Despite resistance to this option, a lack of alternatives means growers are faced with either agreeing to Wilmar’s terms or leaving the industry, according to QSL.

Senator O’Sullivan said he asked a grower at the Friday meeting in Townsville, “what would you like us to do?”

“He said: Nothing. Don’t disturb what exists. We have choice, what we have now works.”

FarmOnline
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READER COMMENTS

Jock Munro
14/03/2015 7:30:20 AM

When the Rudd Government and the Liberal party under Brendan Nelson deregulated the wheat industry and transferred the marketing of the crop to the merchants, Graham Blight, ex NFF said that growers had lost all equity in the market place. Barnaby Joyce as usual, has a firm grip on the destructiveness of deregulation on farm gate returns.
JL
16/03/2015 6:43:29 AM

As a cane farmer, I am concerned that the millers steadfast stance on marketing the sugar has an hidden agenda which will result in less income for the farmer and allow an opening for far more imbalance for the future of the cane farmers. We need a bright future for our next generation but I am scared that they will be the peasants of the future.
JL
16/03/2015 7:53:24 AM

Why are we really concerned? We are locked into this cane industry for years because of the crop cycle of cane. Common practice is 3 ratoons but can be many more. This crop is committed in the ground for 6 years. Our payment system commits us to a long period before payment for plant cane . = Example - ploughout Nov 14 - Plant Cane - April - 15 - Harvest - Aug 16 - last cane pay - July 17. Thats nearly 3 long years before we get paid fully for ONE crop that direct costs started in Nov 14. Would you be concerned for the future if the miller has full control how we get paid???
Gecko
17/03/2015 7:37:05 AM

What is clear is the benefits that millers enjoyed under the regulated environment and continue to enjoy in the unregulated environment. They are simply imposing the benfits that they enjoy. However it is interesting that only the "new" comers to the industry want change. Despite the industry agreement attaching to the deregulation of the Sugar Industry, that marketing would remain with the industry owned marketing company, the "new comers" claim that they did sign off on that, so they can do whatever they want. That includes giving the growers the "bird".

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